E-Trade

 Electronic trading, sometimes called e-trading, is a method of trading securities (such

as stocks, and bonds), foreign currency, and exchange traded derivatives electronically. It
uses information technology to bring together buyers and sellers through electronic media
to create a virtual market place. NASDAQ, NYSE Arca and Globex are examples of
electronic market places. Exchanges that facilitate electronic trading in the United States
are regulated by either the Securities and Exchange Commission or the Commodity
Futures Trading Commission, and are generally called electronic communications
networks or ECNs.

 Advantages

Leverage. Futures operate on margin, meaning that to take a position only a fraction of the total
value needs to be available in cash in the trading account.

Commission Costs. Electronically traded futures contracts require no human intervention to

match buys and sells unlike a traditional futures pit. This means that commission costs can be cut
dramatically, leading to significant savings for the frequent trader.

Liquidity. The involvement of speculators means that futures contracts are reasonably liquid.
However, how liquid depends on the actual contract being traded. Electronically traded
contracts, such as the e-mini's tend to be the most liquid whereas the pit traded commodities like
corn, orange juice etc are not so readily available to the retail trader and are more expensive to
trade in terms of commission and spread.

Ability to go short. Futures contracts can be sold as easily as they are bought enabling a trader to
profit from falling markets as well as rising ones. There is no 'uptick rule' for example like there
is with stocks.

No 'Time Decay'. Options suffer from time decay because the closer they come to expiry the less
time there is for the option to come into the money. Futures contracts do not suffer from this as
they are not anticipating a particular strike price at expiry.

Automated trading. Electronic futures brokers offer the facility to programmers to interface
directly with their trading software. This means that custom written trading software can
automatically trade a strategy without any human intervention at all. A system can make buy/sell
signals which are automatically routed to the exchange along with any stops and targets.
Almost instant fills. With electronically traded futures there is no need to call up a broker and
wait for a fill from the trading floor. Orders are instantly placed on the electronic order book and
filled as soon as a match is found - for liquid contracts such as the emini S&P500 this will be
within a second.

Level playing field. With traditional pit traded futures the professional in the pit has a major
advantage over the retail trader in terms of speed of execution and costs. Electronic futures
trading offers all participants exactly the same advantages.

 Disadvantages of online futures trading

Leverage. Can be a disadvantage if it encourages trading with too high a risk for a particular
strategy. A carefully devised money management plan is essential.

Overtrading. The instant nature of electronic futures trading coupled with low commission costs
and tight spreads can encourage a trader to take additional trades to those determined by their
trading plan.

Online futures trading offers significant benefits to the retail trader. However, a carefully
developed trading plan must be formulated before attempting to enter this extremely competitive
business.